A little over a year ago, Walter Doran, a retired admiral from the United States Navy living in Washington, DC, joined American weapons giant Raytheon International Inc. as president of its Asia operations.
Until then, even though Raytheon International, which is owned by Virginia-based Raytheon Co., had worked on some of India’s biggest military deals for more than 20 years, most of its work in India had been carried out from suites at the Hyatt Regency, a five-star hotel in New Delhi.
Arms fair: The Lockheed Martin stall being given finishing touches ahead of the fifth international land and naval systems exhibition, DefExpo 2008, in New Delhi.
But, since then, as competition has stiffened for the $10 billion or Rs39,500 crore that the Indian Air Force expects to spend on ordering 126 multipurpose fighter aircraft, Doran has shifted base to Singapore, and after having used up over 1,500 guest nights at the hotel in just the last year, his company had decided it needs to find itself a real office.
“Do you know of a place?” he joked on Wednesday, as his team met to work out a strategy for the high-profile Defence Expo 2008, billed as Asia’s largest arms fair, which kicks off in New Delhi on Friday evening ahead of a four-day run. Doran is likely to find he has stiff competition, and not just for a piece of the action on the aircraft deal.
Lockheed Martin Corp. officials who regularly provide custom to the tony Oberoi business hotel in the Capital, are also looking for office space. Boeing Co., which worked out of a hotel suite at the Taj Palace hotel until 2002, moved to a cramped office in Connaught Place and then to a swank address in South Delhi.
Raytheon and Lockheed’s market plans are mirrored in the expectations of hundreds of foreign and Indian companies that will be peddling their myriad wares at DefExpo, as the industry event is commonly referred to, and underlines the changing nature of the market created by India’s defence acquisition programme, which by some estimates will hit a cumulative $100 billion over the next 10 years.
India was the world’s largest importer of new weapons systems and military hardware in 2005-06, the last year for which complete data is available, spending a record $6 billion. The closest competitors, China and Saudi Arabia, spent no more than $3 billion each. Countries such as the US and UK consume far more a year on weapons upgrades but are mostly served by local weapon makers.
“For decades, there was this idea that HAL (Hindustan Aeronautics Ltd) and the DRDO would design and produce whatever we (Indians) don’t want to buy from the international market,” said a senior civilian official in charge of supplies and acquisition at the ministry of defence, referring to the state-owned Defence Research and Development Organisation. “But now, with the private sector developing, we can have as many as 100 tenders at any given time for just the army or the air force.”
Currently, just 9% of the total value of India’s arms purchases are sourced from Indian private companies, and the government wants that amount to grow to about 70%. But with just 9%, consultant Ernst and Young estimates that India’s private defence industry market could be worth as much as $700 million.
A mushrooming industry of specialized companies are vying for the smaller deals that keep the Indian military alive. Consider this: Reebok India Co. wants to get in on the nearly $10 million a year that the Indian military spends on uniforms, shoes and rucksacks. Canada’s Armet Armored Vehicles Ltd is competing for the chance to up-armour commercial vehicles like the sports utility vehicles and longer sedans driven by senior officers in the military—each individual contract would yield not more than $15,000. Noida’s Precision Electronics Ltd, which just signed a memorandum of understanding or MoU with Raytheon, is angling to get a larger piece of the massive telecom network that the military maintains nationwide. Even Raytheon, whose sales of aviation electronics and weaponry on the fighter jet deal depend on India choosing an American plane, is hedging its bets through what one company executive called “early exploratory discussions” with the navy on other weapons system India might buy in the next few years.
Some are putting money on the ground. The United States-Rockwell Collins Inc., which introduces itself as the radio and communications company that made it possible for Neil Armstrong to call home from the moon, has spent years of feeling out the temperature. Now, the company will set up a design and engineering office in Hyderabad, said its vice-president for global technology Raj K. Aggarwal. The company, in a tie-up with Electronics Corp. of India Ltd is vying for a contract for 300 sophisticated radios that the air force wants to buy within the next year.
The company will start with hiring about two dozen people to start the centre by October, developing cockpit display applications and flight management systems. If it is able to find a foothold in the market, it will ramp up to 500 employees in 2012.
Like other Indian defence deals, the fighter jet deal will have an offset requirement of as much as 50%, which will require the winning bidder to manufacture the fighter jets in such a way that parts totalling at least half the monetary value of each fighter is built in India; in partnership with Indians, if needed. So Raytheon has signed up eight MoUs, some with heavyweights like Larson and Toubro Ltd, Wipro Ltd and Bharat Electronics Ltd.
Boeing, which works on the F/A-18 Super Hornet, has signed four deals with HAL, Tata Manufacturing Solutions Ltd (which will also make floor beams for the Boeing 787 commercial aircraft) and Tata Industries Ltd. The most recent of these was announced on Thursday, when Boeing said a joint venture with Tata Industries could see up to $500 million in high-tech parts being built in India for Boeing’s P-8i naval aircraft, the F/A 18 Super Hornet or the CH-47 Chinook helicopter, each of which is an aircraft that different parts of the Indian military are considering for purchase.
Though “physically”, as Vivek Lall, president and India head for Boeing Integrated Defense Systems, put it, the US company will have only an F-18 simulator and Chinook cockpit simulator to showcase at this year’s DefExpo, it will be bringing in a 30-member delegation led by its president of IDS Precision Engagement and Mobility Systems, Chris Chadwick, who previously as vice-president of the F-18 program, headed up the fighter plane’s design. The F-18 is one of two US aspirants for the Indian order.
“We have a product; therefore, we are continuously trying to send our message out. It’s a constant drumbeat,” said Lall.
And, underlining the fact that the $10 billion fighter jet deal is only a small part of what India’s defence establishment will spend, BAE Systems Plc., Europe’s biggest defence contractor, too is making a splash at the DefExpo to show off its land systems such as tanks, armoured vehicles and jeeps. “Our reputation is a that of a British company that makes aircraft. But actually we are the world’s largest manufacturer of land systems. This is a good opportunity to show our land domain. It’s our largest presence in India so far,” says BAE global spokesperson Guy Douglas.
As Indian companies participate in the offsets, defence experts think that in the next 10 years, India could have a sustainable private infrastructure for defence needs. In the past, several offset generated joint ventures have not lasted past the length of the offset requirements. Jasjit Singh, former director of Delhi-based think tank Institute for Defence Studies and Analysis, said, in the 126 aircraft deal, India has the chance to define where it wants to see its defence industry in 2050. The country’s past policies allowed it to master what is called licence manufacturing: Indians, for instance, learnt how to build an aircraft’s frame but not how to design the more sophisticated components that make up a modern fighter jet, Singh explained. “The balancing factor (in the aircraft deal) should be what is it that they will offer us as an overall package, which areas are they going to invest in offsets, what capacity will they create so that 70-80% aircraft (can be made) in India.”